They Might Be Giants

Exploring Emerging Frontiers: AI Funding, The Space Economy, Fintech, Precision Medicine, and Sustainability Reporting Insights.

This episode is presented to you by Francois Chadwick, National Partner in Charge of the Emerging Giants practice at KPMG U.S. Francois is the former acting CFO of Uber and has served as CFO at various companies. He is focused on pre-IPO companies that are looking to scale and create value.

Welcome to episode two of KPMG's Opportunity (In)sight.

As your guide to the Emerging Giants landscape (which is varied and ever evolving), we explore the commercial (outer) space revolution's impact on our lives here on earth, the challenges of data use and privacy in fintech, and the transformative potential of Precision Medicine.

Lastly, we discuss the strategy-execution gap in sustainability reporting and how businesses can unlock its hidden value.

A very varied set of topics that may well have something weaving through all of them….AI.

Stay tuned for expert opinions and news from KPMG and follow me on LinkedIn.

AI Continues to Be a Bright Spot for Investors in 2024

Before we dive into the Emerging Giants varied landscape, let's discuss the hot topic of the year…AI.

I recently participated in a LinkedIn Live about the Q4'23 US VC landscape, which found that AI was the clear winner in an otherwise relatively lackadaisical quarter of VC investment, continuing a trend that has built significantly over the course of 2023. AI-focused startups accounted for several of the top ten largest deals globally; the US attracted the largest share of this investment.

VC investment in the US is expected to remain subdued in the first half of 2024 as investors continue to conduct a significant amount of due diligence on deal opportunities and prioritize investments in companies with robust unit economics and sustainable business models given the current business climate.

AI will likely remain a key exception, with investors in the US globally expected to continue to pour money into the space. Longer term, investment will likely begin to focus more on companies with true AI offerings as opposed to companies providing AI wrappers to existing technologies or solutions. Solutions specifically focused on enterprise AI will likely also increasingly attract attention as businesses across industries look to integrate AI into their operations in order to enhance their human workforce and drive efficiencies.

In 2023, VC investors set their sights on Generative AI, with a record $29.1 billion invested across 691 deals. We’re now seeing automation and AI across every function and industry vertical as we continue into 2024, with tailored applications that require smaller datasets and produce a quicker ROI. With the AI sector becoming more specialized, where will investors focus their efforts next??

I believe we are looking ahead at one of the most interesting 12–18-month periods of venture investing. As recently reported in the New York Times, Saudi Arabia announced it intends to establish a fund of approximately $40 billion to allocate towards investments in AI. This development serves as another indication of the widespread enthusiasm surrounding this transformative technology, which has already started to redefine various aspects of human life and employment.

We arguably have never seen this level of economic and geopolitical uncertainty matched against such an exciting world changing phenomenon —AI. It will be captivating to observe the interplay between these two forces.

Beyond the Stars: How the Space Economy is Shaping Our Future

The space economy is booming, with the commercial space revolution in full swing. Companies are launching thousands of satellites, and the number is expected to exceed 100,000 by the end of the decade. The space industry is projected to exceed a trillion dollars in value by 2040. However, this rapid growth brings concerns about space debris, light pollution, flight safety, and space traffic management.

However, the commercial space sector has much to offer in terms of sustainability. Beyond space tourism, the new space economy includes satellite deployment for telecommunications, earth observation, and navigation, as well as resource extraction from asteroids and the moon. Despite the carbon-intensive nature of launches, the benefits offered by space technologies in achieving environmental goals are significant.

The space economy also has implications for life sciences and healthcare, with space technologies offering new opportunities to improve patient outcomes, reduce costs, and increase efficiency. The COVID-19 pandemic has highlighted the applicability of space-created technologies to healthcare, from epidemic mapping to health education delivery in remote communities.

As we continue to reach for the stars, the burgeoning space economy not only promises a new frontier of exploration and innovation, but also holds the potential to revolutionize industries on Earth, driving sustainability, enhancing healthcare, and transforming utilities, making our future both exciting and promising.

The Fintech Dilemma: Trade-offs and Considerations in the Pursuit of Success

The fintech sector is at a crossroads. Rapid innovation, driven by data analytics and customer demand, is blurring the lines between traditional financial institutions and other industries. As services such as payments, savings, and investments become fully digital, the future belongs to "connected enterprises" that can leverage data to understand customer preferences, ensure data privacy and cybersecurity, and balance product development speed with risk and regulatory exposure.

The future of fintech is not just about who can innovate fastest, but who can navigate the complex regulatory landscape. Regulation has become a major consideration, with increasing legislation to address risks around licensing, consumer protection, and financial crimes. Fintech companies are investing in risk management, compliance, and operational excellence to build customer trust.

The growth and innovation in the fintech sector bring risks, especially in the highly regulated financial services sector. A considerable number of fintech firms (79%) plan to invest significantly in customer experience over the next year. However, they should also consider integrating back and front office operations to build trust and become more agile and flexible. The rise of AI and machine learning, the expected growth of the embedded finance industry, and the potential of Central Bank Digital Currencies (CBDC) are all factors that will shape the future of the fintech sector.

Precision Medicine: Revolutionizing Treatment Paradigms for Better Patient Outcomes

Precision Medicine is not only a rapidly growing field but also an emerging giant in the life sciences sector deal space. It is driving innovation and mergers and acquisitions (M&A) as companies recognize the immense potential it holds. While Precision Medicine initially focused on oncology and rare diseases, it is now expanding into other areas such as cardiology, immunology, and neurodegenerative diseases. This expansion not only broadens the scope of Precision Medicine but also requires a fundamental change in the traditional pharma business model.

Artificial intelligence (AI) is also playing a crucial role in the Precision Medicine continuum, from screening and risk assessment to treatment optimization and monitoring. Given the promise and potential of Precision Medicine, it continues to be a focal point for dealmaking.

For example, the $43 billion acquisition of Seattle Genetics (Seagen) by Pfizer in 2023, a biotech firm with a strong pipeline of oncology treatments, shows the significant investments being made in this field. Back in January, much of the conversation from the 2024 JPMorgan Healthcare Conference focused on how policy issues and high company valuations could slow M&A activity.

Data Evolution: Unleashing the Hidden Value of Sustainability Reporting

The KPMG survey, "Addressing the Strategy Execution Gap in Sustainability Reporting," highlights a notable strategy-execution gap in businesses' sustainability reporting, despite a strong intention to increase ESG investment. While many organizations believe they are ahead on sustainability reporting, challenges such as measuring ROI and understanding value drivers persist. Surprisingly, many still rely on spreadsheets for data aggregation, and only a small percentage seek third-party assurance for enhanced credibility.

To bridge this strategy-execution gap, organizations plan to use AI and ML for data analysis. KPMG’s Rob Fisher recently pointed out that the SEC’s climate proposal in March 2022 was issued before the rise of generative AI. Now, with the finalization of the rule, AI should help organizations more effectively disclose down the line. Machine learning and AI should complement a cohesive strategy rather than drive it though, and a significant amount of data and work needs to be done on the front-end to get the most out of the technology.

Other structural challenges, like insufficient collaboration resources and internal silos, hinder the integration of sustainability strategy into broader business goals. While some organizations plan for minor adjustments, only one-third plan for major restructuring. As businesses evolve their data use in sustainability reporting, it should become easier to find and operationalize value from sustainability strategies.

Fisher said, “Organizations that view reporting as an expansion of their broader sustainability strategy and invest in the right people and technology will better realize and communicate the full value of sustainability initiatives."

In The News

• My colleague Conor Moore, global head of KPMG Private Enterprise, spoke to the Wall Street Journal recently about the general environment for IPOs.? Conor remarked that the environment is more stable than it has been in the past 15 to 18 months. However, he suggests that the window for IPOs is likely to close by August due to 2024 being an election year. Companies with strong balance sheets, like Databricks are not in a rush to go public and can afford to wait out the election.
• With the Securities and Exchange Commission’s (SEC) climate rule finalized, a KPMG survey reveals 90% of companies plan to boost their ESG investment in the next three years. Maura Hodge, KPMG’s US ESG Audit Leader, attributes this to regulatory pressure. While most companies still use spreadsheets for data management, a shift towards sustainability-related software is expected.
• Facing a downturn in biopharma deal activity, the JPMorgan Healthcare Conference notes that the sector is under pressure.? My colleague, KPMG's U.S. sector leader for life sciences, Kristin Pothier, noted in MM+M that many companies "put the brakes on 2023." Despite this, a KPMG survey reveals 61% of investors plan to increase deal activity in 2024, though Pothier warns high valuations could pose a challenge.

Make the Difference

BKV, the Denver, Colorado-based energy company, learned a valuable lesson when transforming from a start-up to a leading natural gas producer, quadrupling in size over five years. Discover how BKV worked with KPMG to use data powered by technology to continue to drive their transformation.

Tune in to learn more about Emerging Giants

Join me and KPMG Private Enterprise leaders Conor Moore and Shivani Sopory on April 17th at 11:30 AM ET as we discuss green shoots in the IPO market, the impact of the 2024 presidential election on public listings, as well as the current state of the VC environment following Q1 2024.

Click here to join us.

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